Recent Posts:

Gogo (GOGO) — It’s a little hard not to feel bad for this pioneer in fee-based in-flight wireless connectivity as it fights an uphill battle to make its business viable. The company already has to compete with airports and airlines offering free or fee-based Internet, and now AT&T (T) is threatening to enter the market.

What GOGO doesn’t have in profits, revenue, margin, dividends or free cash flow, it tries to make up for in market share. It controls 80% currently, but unfortunately, that does give it an advantage. Assuming it’s OK to lose money indefinitely, attract anti-trust lawsuits and build a model that can be easily copied by your forward-integrating clients, then GOGO seems like a great company.

We could go on about the fundamentals, but the short-term story of the technicals is a more interesting topic for today. While it doesn’t have a long history as a publicly traded company, $18 has become an important inflection point. It served as resistance in the fourth quarter of 2013, then support this January, and the opening of the bearish gap on April 29.

Then, on May 29-30, the stock formed a bearish harami at this key resistance level. The harami is one of the signals we favor when looking for a stock likely to fill a downside gap after a bounce higher. In this case, the technicals are backing up the fundamental story as volume dries up on the rally.

The initial target is the bottom of the downside gap on April 29. That happens to be the 161.8% target level from the February-March bull trap. Assuming downside momentum remains strong, we suggest applying the same ratio (161.8%) again, which places the target near $7.50. This also lines up precisely with the 261.8% target from the aforementioned bull trap.